A Lesson on Pay-if-Paid Clauses

pay-if-paid clausesNot too long ago, I litigated a case that turned on the enforceability of a pay-if-paid clause.   The very good attorneys on the other side argued that the clause at issue was enforceable, such that it excused their general contractor client’s failure to pay.  I argued, on behalf of my subcontractor client, that the provision was unenforceable.  The trial court agreed with me on summary judgment, which led to a very favorable settlement for my client.

So what was wrong with the clause the parties were fighting over? Among other things, I argued that it did not comply with the requirements set forth in L. Harvey Concrete, Inc. v. Agro Const. & Supply Co., 189 Ariz. 178, 939 P.2d 811 (App. 1997).  L. Harvey is the seminal Arizona case on pay-if-paid clauses.  It holds that pay-if-paid provisions are enforceable if they meet the following three requirements:

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The Minimum Elements of an Arizona Construction Contract

sign-40599_150Should the construction contract you are about to enter contain an indemnification provision?  What about “no-damage-for-delay” or differing site condition clauses?  Or how about a waiver of consequential damages?  The inclusion and scope of these types of provisions (and countless others) in any particular construction contract are things you should discuss with your attorney.   Whether they are necessary or should be agreed to may vary depending on the type of project and the parties involved.  There are, however, certain minimum elements that must be in every Arizona construction contract.

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